Bank of America reached the largest government settlement in American history Thursday, worth $16.5 billion. But for California, the deal might not be as good as it seems.
The money is divided into two pots; The Golden State gets $300 million in damages. That reimburses the state’s pension funds for bad investments on mortgage-backed securities.
California is also guaranteed at least $500 million in consumer relief credit for things like loan modification relief and making more loans available to low-income housing buyers.
Those are all good things, says Kevin Stein, Associate Director of the California Reinvestment Coalition, but they’re also things Bank of America is already doing.
“It’s not clear this is requiring them to do more than they were otherwise going to do,” said Stein.
Stein says even now, with the foreclosure crisis seemingly a distant nightmare, his group still gets lots of complaints about banks and one of the worst offenders is Bank of America.
He says the settlement is important, but it doesn’t do enough to ensure that the people who most need help will get it and as big as the settlement is, he doesn't think it's big enough.
“I think it’s hard for anyone to argue that the relief that comes from this agreement is commensurate with the harm that’s been caused," said Stein.
There's also another reason the settlement is not that bad for Bank of America: Most of it is likely tax-deductible, according to USA Today:
An estimated $10 billion to $11.63 billion of Thursday's agreement with federal and state authorities could be claimed as deductions by the nation's second-largest bank — producing roughly $4 billion in tax benefits — the watchdogs said.
Government attorneys could have insisted the deal rule out tax deductions, as they did with Swiss banking giant Credit Suisse's $2.6 billion settlement in May for helping wealthy Americans evade taxes.
Instead, a provision near the end of the 27-page pact states there was no agreement "concerning the characterization of the settlement amount for the purposes of the Internal Revenue laws."
Through a spokesman, California Attorney General Kamala Harris, who investigated Bank of America and helped announce the settlement, declined to comment but she offered praise in a prepared statement.
“Bank of America profited by misleading investors about the risky nature of the mortgage-backed securities it sold,” Harris said. “This settlement makes our pension funds whole for the financial losses caused by these misrepresentations and brings help to hard-pressed homeowners and communities in California.”
The value of consumer credits could likely go much higher than $500 million, according to Paul Leonard, the California Director of the non-profit Center for Responsible Lending.
“If previous settlements are any indication, California has been pretty successful in drawing more than the minimum and more than its fair share,” Leonard said.
But he added that consumers seeking mortgage relief will still be at the mercy of Bank of America.
"Ultimately Bank of America is responsible for determining who gets that relief and who does not," said Leonard.